nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒05‒02
ten papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Specific Accounting Records for General Insurance in Conditions of the Harmonizing Romanian Legislation with International Accounting and Financial Reporting By Dobrin, Marinica
  2. Disability in the Welfare State: An Unemployment Problem in Disguise? By Bratsberg, Bernt; Fevang, Elisabeth; Roed, Knut
  3. Can the Health Insurance Reforms stop an increase in medical costs of middle- and old-aged persons in Japan? By Tamie Matsuura; Masaru Sasaki
  4. Insurance contracts on tourism By Krasniqi, Armand
  5. The Behavioral Economics of Insurance By Ali al-Nowaihi; Sanjit Dhami
  6. Insurance regulation and the credit crisis. What’s new? By Ferro, Gustavo
  7. Estimating the Impact of Immigrants on the Host Country Social Security System When Return Migration is an Endogenous Choice By Kirdar, Murat G.
  8. When Can Insurers Offer Products That Dominate Delayed Old-Age Pension Benefit Claiming? By Sanders, E.A.T.; De Waegenaere, A.M.B.; Nijman, T.E.
  9. The Global Crisis: Fatal Decisions - Four Case Studies in Financial Regulation By Leo F. Goodstadt
  10. Loss Distributions By Burnecki, Krzysztof; Misiorek, Adam; Weron, Rafal

  1. By: Dobrin, Marinica (Universitatea Spiru Haret, Facultatea de Management Financiar Contabil)
    Abstract: This paper presents features of records related to general insurance in Romania in terms of harmonization with European directives specific to insurance. Specific records show mainly life insurance: income and expenditure accounts of the operations of insurance (premiums written record, the record collection of insurance premiums, cancellation of insurance policies, recording compensation expense), accounting for costituirea operations and use of technical reserves (accounting reserve premiums, claims reserve accounting, reserve accounting for Unexpired risks, catastrophe reserve accounting, reserve accounting for benefits and risturns).
    Keywords: insurance; income; expenses; premiums underwritten; profit/loss year; insurance intermediaries; insurance policy; compensation; technical reserves; premium reserves; reserves for damages; unexpired risks reserve; reserve expenditure equalization; reserve for disaster
    JEL: A11
    Date: 2010–04–25
  2. By: Bratsberg, Bernt (Ragnar Frisch Centre for Economic Research); Fevang, Elisabeth (Ragnar Frisch Centre for Economic Research); Roed, Knut (Ragnar Frisch Centre for Economic Research)
    Abstract: Economies with low unemployment often have high disability rates. In Norway, the permanent disability insurance rolls outnumber registered unemployment by four to one. Based on administrative register data matched with firms' financial statements and closure data collected from bankruptcy proceedings, we show that a large fraction of Norwegian disability insurance claims can be directly attributed to job displacement and other adverse shocks to employment opportunities. For men, we estimate that job loss more than doubles the risk of entry to permanent disability and that displacements account for fully 28 percent of all new disability insurance claims. We conclude that unemployment and disability insurance are close substitutes.
    Keywords: disability, displacement, social insurance, employment opportunities
    JEL: H55 I12 I38 J63 J65
    Date: 2010–04
  3. By: Tamie Matsuura (NLI Research Institute); Masaru Sasaki (ISER, Osaka University)
    Abstract: Using two-period panel data from the Nippon Life Insurance Research Institute, this paper tests the hypothesis that an increase in the self-pay ratio of medical expenditures associated with the Japanese health insurance reforms of April 2003 reduced individual medical costs. We find that the increase in the self-pay ratio of medical expenditures has a trivial effect on household medical expenses, implying that a decrease in the quantity demanded for medical services offsets the increase in medical costs. However, according to quantile regression estimates, an increase in the self-pay ratio of medical expenditures has a significantly positive effect on the share of medical costs for relatively high quantile values. This provides corroborating evidence that an increase in the self-pay ratio cannot cut the demand for medical services relatively more for those bearing a higher share of medical costs in household expenditure. An additional finding is that medical services are a necessity good, particularly for those with a relatively high share of medical costs in household expenditure.
    Keywords: health insurance, medical costs, Engle curve, middle- and old-aged persons, Japan
    JEL: I11 I18
    Date: 2010–04
  4. By: Krasniqi, Armand
    Abstract: The business life in the modern world is developed upon the logia of the domination of the rules and within them an important role play those that are related to implementation of the standards that are connected with he security and insurances. Due to the need for an economic transformation it resulted with the creating of a new set of new contracts which commencing from several general principles of the obligatory law, that regulate the situation which were not established insofar, which in fact are established in practical life. These constructions of the contract law largely begin to be distinguished from the so-called classic contracts out of the civil law. The contracts, often similarly with the classic ones, with their content and intention, the differ so largely from the classical ones that now cannot be argued anymore for one of their existing contracts but for the new type of contracts, independent, sui-generis. Viewed from this plan the contract on insurance is known from the early times, but now it has been so largely transformed thus now transaction or operation within the domestic or international trade is not conducted without involvement of this contract.
    Keywords: Contract; insurance; insurance company; tourism; business; policy; imperative rule
    JEL: K0 L83
    Date: 2010–04–26
  5. By: Ali al-Nowaihi; Sanjit Dhami
    Abstract: We focus on four stylized facts of behavior under risk. Decision makers: (1) Overweight low probabilities and underweight high probabilities. (2) Ignore events of extremely low probability and treat extremely high probability events as certain. (3) Buy inadequate insurance for very low probability events. (4) Keeping the expected loss fixed, there is a probability below which the take-up of insurance drops dramatically. Expected utility (EU) fails on 1-4. Existing models of rank dependent utility (RDU) and cumulative prospect theory (CP) satisfy 1 but fail on 2, 3, 4. We propose a new class of axiomatically-founded probability weighting functions, the composite Prelec weighting functions CPF) that simultaneously account for 1 and 2. When CPF are combined with RDU and CP we get respectively, composite rank dependent utility (CRDU) and composite cumulative prospect theory (CCP). Both CRDU and CCP are able to successfully explain 1-4. CCP is, however, more satisfactory than CRDU because it incorporates the empirically robust phenomena of reference dependence and loss aversion.
    Keywords: Decision making under risk; Insurance; Composite Prelec probability weighting functions; Composite rank dependent utility theory; Composite cumulative rospect theory; power invariance; local power invariance
    JEL: C60 D81
    Date: 2010–04
  6. By: Ferro, Gustavo
    Abstract: Prior to the 2008 global credit crisis, some developments had occurred in the regulation of the insurance industry worldwide. At different speeds, the world was heading toward a more risk-based solvency regulation and some convergence on principles and criteria. We see a common thread in the present discussion and in the way events happened. We consider that the great debate in the industry is a fundamental decision: whether to engage in other than core business activities. If the industry focuses on its insurance business, the argument for specialized regulation and the continuity of a conservative and prudent line of business is strong. Instead, if the industry deepens its identification with other lines of financial business, the specialized supervision arrangement does not hold. The move entails both possibilities of new, riskier and promising business, but also perils, since the industry “buys” the systemic characteristics that distinguish other financial institutions.
    Keywords: regulation; insurance; financial crisis; integrated supervision; financial conglomerates
    JEL: L51 G22
    Date: 2010–02
  7. By: Kirdar, Murat G. (Middle East Technical University)
    Abstract: In this paper, I estimate the fiscal impact of immigrants on the German pension insurance (PI) and unemployment insurance (UI) systems when return migration is an endogenous choice. For this purpose, I develop a dynamic stochastic model of joint return migration and saving decisions that accounts for uncertainty in future employment and income and estimate this model using a longitudinal data set on immigrants from five different source countries. I find that allowing for the endogeneity of the return decision makes a substantial difference in the net gain of the PI and UI systems from immigrants. Exogenous return migration – which has been the practice of the literature so far – underestimates the net gain for almost all demographic groups and the amount of underestimation is remarkable for several demographic groups. In addition, age-at-arrival profiles of net contributions of immigrants – which form the basis of suggestions on selective immigration policies in the literature – are rotated significantly. Finally, a counterfactual policy experiment in which cash bonuses are provided conditional on return to unemployed immigrants turns out be ineffective in terms of reducing the burden on the state coffers for most demographic groups.
    Keywords: immigrant workers, life cycle models, saving, social security, public pensions, unemployment insurance, public policy
    JEL: J61 D91 H55 J65 J68
    Date: 2010–04
  8. By: Sanders, E.A.T.; De Waegenaere, A.M.B.; Nijman, T.E. (Tilburg University, Center for Economic Research)
    Abstract: It is common practice for public pension schemes to offer individuals the option to delay benefit claiming until after the normal retirement age and adjust the annual benefit level as a result. This adjustment is often not actuarially neutral with respect to the age at which benefits are claimed. The degree of actuarial nonequivalence varies by interest rates as well as individual characteristics such as gender and age. In this paper we show that actuarial nonequivalence can imply that deferring benefit claiming is suboptimal, irrespective of the preferences of the individual. Specifically, we derive preference-free conditions under which delaying benefit claiming is dominated by claiming benefits early, and using them to buy super-replicating annuity products from an insurance company. We find that the degree of actuarial nonequivalence in public pension schemes is such that such dominating strategies can exist even when the purchase of annuities would be significantly more costly than what is currently observed. If individuals choose to strategically exploit these dominating strategies, this will affect benefit claiming behavior, which in turn affects long run program costs.
    Keywords: Pension Benefit Claiming;Delay Options;Actuarial Nonequivalence;Preference-free Dominance
    JEL: H55 D14 G22
    Date: 2010
  9. By: Leo F. Goodstadt (Hong Kong Institute for Monetary Research, Trinity College, University of Dublin, The University of Hong Kong)
    Abstract: This paper uses four case studies to review the performance of the Anglo-American regulatory ¡¥culture¡¦. In the decade before the global financial crisis, American and British officials were almost identical in their analysis of and non-interventionist responses to identified threats from changing financial conditions in Asia; dependence of new financial products on the insurance industry; shortcomings of the rating agencies; and excesses in their property markets. They now acknowledge these past policy errors but continue to resist consumer protection and other reform initiatives.
    Keywords: Asia, China, Derivatives, Insurance, Credit Ratings, Property, Consumer Protection
    Date: 2009–11
  10. By: Burnecki, Krzysztof; Misiorek, Adam; Weron, Rafal
    Abstract: This paper is intended as a guide to statistical inference for loss distributions. There are three basic approaches to deriving the loss distribution in an insurance risk model: empirical, analytical, and moment based. The empirical method is based on a sufficiently smooth and accurate estimate of the cumulative distribution function (cdf) and can be used only when large data sets are available. The analytical approach is probably the most often used in practice and certainly the most frequently adopted in the actuarial literature. It reduces to finding a suitable analytical expression which fits the observed data well and which is easy to handle. In some applications the exact shape of the loss distribution is not required. We may then use the moment based approach, which consists of estimating only the lowest characteristics (moments) of the distribution, like the mean and variance. Having a large collection of distributions to choose from, we need to narrow our selection to a single model and a unique parameter estimate. The type of the objective loss distribution can be easily selected by comparing the shapes of the empirical and theoretical mean excess functions. Goodness-of-fit can be verified by plotting the corresponding limited expected value functions. Finally, the hypothesis that the modeled random event is governed by a certain loss distribution can be statistically tested.
    Keywords: Loss distribution; Insurance risk model; Random variable generation; Goodness-of-fit testing; Mean excess function; Limited expected value function
    JEL: G22 C46 C15
    Date: 2010

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